SINGAPORE - A bubbling property market represents the latest indication that
Singapore is recovering from its global crisis-induced economic doldrums.

Surging demand for residential units has in recent months seen potential buyers
queue for hours before new house openings and anecdotally many have left blank
checks with their property agents to fill out to secure their spots in new
projects.

When the global economy crashed last year, Singapore was among Asia's hardest
hit. As one of Asia's most open and export-dependent economies, the island
state was the region's first to slip into recession last year after recording
two consecutive quarters of economic contraction. Slowing growth took an
especially heavy toll on the island state's property market, which

was growing briskly in the run-up to the crisis.

Local property consultancy company DTZ said that the number of property
transactions it handled last year was down about 35% on the number of units
sold in 2007. Prices of non-landed freehold private homes in the island state's
prime districts fell by 21.6% year on year in 2008, driven down by a 14%
quarter-on-quarter contraction in the fourth quarter.

Prices of government-built Housing Development Board (HDB) flats also suffered,
with many apartments sold at or below market valuation.

Bearish sentiment, unsold inventories and the potential for buyer default risk
had caused industry analysts earlier this year to predict that high-end
property prices could decline by between 15-20% in 2009. For mid-market
properties, the consensus forecast was a 5-10% decline. Singaporean buyers have
defied those downcast expectations, with market sentiment turning positive in
the second quarter judging by the surprisingly high number of deals closed.

Private sector developers in July launched an all-time high of 2,878 new flats
and an astounding 2,767 of those units were sold out within a month. That sales
figure smashed by 52% the record of 1,825 units sold set the previous month.
Over 43% of the transactions that took place in July fell under the middle- to
high-end tier, with prices anywhere between S$1,000 (US$715) and S$1,999 per
square foot depending on location.

New luxury developments in Singapore's reclaimed areas on the offshore island
of Sentosa, where prices average S$2,000-S$3,500 per square foot, also reported
steady sales. Significantly the rush has also driven up the prices of
government-built HDB flats. In the second quarter, more than 10,000 HDB resale
flats changed hands, up from 6,446 units in the first quarter and 7,763 units
in the same quarter of last year.

That figure climbed higher to 11,649 units sold in the third quarter,
representing the highest such level in five years. Mass-market leasehold
projects outside of prime areas have returned to 2007 price levels, according
to Chua Chor Hoon, head of Southeast Asia research at DTZ Debenham Tie Leung, a
property consultancy. The average price of a leasehold non-landed resale home
rose to S$610 per square foot in the third quarter of this year, a mere S$5
less than the 2007 peak level. This, he notes, reverses a more than 20% fall in
2008.

For resale HDB flats, price increases are calculated by the level of
cash-over-valuation (COV) buyers pay sellers. The COV median in the third
quarter quadrupled to S$12,000 per unit compared to the going rates in the
second quarter, according to data released by the Housing Development Board
(HDB). Property agents say many sellers now ask for a minimum of 30,000 COV per
unit, and in some cases, it can go as high as $70,000. Property agency PropNex
chief executive Mohamed Ismail, believes that resale HDB prices are on course
to rise 2%-3% over the fourth quarter.

Singapore's rebound comes as regulators in other recovering regional markets
bid to rein in property lending due to concerns that rising prices could cause
more bad debts. The recovery has also rekindled pre-crisis complaints about the
chronic shortage and rising cost of government-built flats. In land-scarce
Singapore there is always pent-up demand for new housing, including from newly
married couples looking to purchase their first home.

But comparatively rich foreign buyers are now viewed as the main drivers behind
the rising prices of both private homes and HDB flats. Property agency ERA's
statistics show that foreigners with permanent resident status (PRS) accounted
for 40% of their recent buyers, up from 20% three years ago.

To cool the market, HDB announced it would release 7,000 new flats onto the
market between October and December. It also said it would offer over the next
two months 4,000 new flats under a build-to-order (BTO) scheme, on top of the
1,200 new BTO flats which were already in the construction pipeline. Private
home sales rates came off their recent highs in September. But many analysts
are skeptical the moves will stabilize the market due to doubts that buyers
will be willing to wait the three year construction time and because the BTO
scheme is only available to Singapore citizens.

Popular public housing
HDB flats, in which about 84% of the population resides, have long been the
cheapest housing option in Singapore. Getting an HDB flat of one's choice,
however, is not easy because of a tedious balloting process. Flats in popular
locations are usually oversubscribed by over 10 times and that high demand is
expected to grow due to the inelasticity of supply and a growing population.
One local newspaper recently featured a married couple who still live
separately in their respective parents' homes because of their inability to
secure a HDB flat of their own.

Resale flats' higher prices, driven up by foreign buyers, have put them out of
reach for your average Singaporean. Many have also blamed the HDB for raising
the valuation of its flats at the end of last year as a reason for the recent
price spike. An online petition launched in September calling on the government
to intervene in the market by lowering HDB valuations and building more
affordable flats quickly surpassed its target of 1,000 signatures.

Parliamentarian Lim Wee Kiak raised the issue of affordable housing in
September by advocating a new mechanism to provide bridging loans to young
couples looking to buy their first flat. In response, National Development
Minister Mah Bow Tan said that HDB flats remain affordable to most
Singaporeans, with first-time households using on average less than 30% of
their household income to service their housing loans.

However a study published last year by National University of Singapore
economists Tilak Abeysinghe and Gu Jiaying found that the purchasing power of
people's lifetime earnings was lower in 2007 than it was in 1990 when tracked
against the prices of HDB resale flats. The study found that the prices of HDB
resale flats were less affordable over the period - and notably before the more
recent surge in prices.

What Mah apparently overlooked was the impact of longer mortgage loan periods.
In the 1980s, maximum loan tenures were set at 20 years. It has since been
revised upward and this year 56% of HDB flat buyers opted for the maximum
30-year tenure. Analysts say a higher cost of living means that your average
Singaporean must allocate a higher percentage of their monthly income for
housing than was required 20 years ago. It also means that Singaporeans need to
work longer than before to pay off their housing loans, they say.

Minister Mah also said that the HDB will continue to supply new housing units
but "we cannot be building new flats to cater to every last person who wants a
new flat ... because if you do that, then obviously you are over-building". He
quoted HDB data which states that "eight in 10 first-timers could get a flat on
their first try if they were not choosy; the success rate was 96% for the
second try". HDB has also stepped up efforts to provide smaller housing units
for older people who wish to downgrade in size and purchase back flats from the
aged who have lost their previous sources of income.

Since it was first established in 1960, HDB was designed to provide affordable
homes to Singaporeans in a push towards economic modernization. The state
agency was so successful in moving people out of slums and into neat storied
flats that last year it won the United Nations Public Service Award, in
recognition of its drive to raise public housing standards.

HDB does not intervene directly by fixing prices of its resale flats, but it
does influence market conditions through its control over new supply, said Wong
Tai Chee, associate professor in urban studies at the Nanyang Technological
University and co-author of the paper "A Roof Over Every Head, Singapore's
Housing Policy between State Monopoly and Privatization".

He cited an example of when the government cut prices by as much as S$40,000
per unit over eight years ago in newly opened remote areas of Punggol and
Sengkang. Cash-strapped buyers were attracted by the price cuts and the measure
helped to clear a temporary oversupply on the market.

During the 1996 property boom, the government imposed a capital gains tax on
profits made from selling properties within three years of purchase. The rule
continued until 2001 when it was abolished to spark more property transactions
during an economic downtrend. The government could eventually decide to readopt
such measures to deter current property speculation, some analysts reckon.

Minister of Finance Tharman Shanmugaratnam recently said the government does
not plan to impose capital gains taxes on property as part of new changes to
the income tax code, which come into force in January next year.

In a move many saw as a bid to tramp down speculation, the government last
month barred certain low cost loans for housing projects. It also recently
banned developers from absorbing interest payments for projects that were still
under construction. But there are few indications yet that demand or prices are
set to slow for HDB housing.

Megawati Wijaya is a Singapore-based journalist. She may be contacted at
megawati.wijaya@gmail.com.